Keynesians love wars and the war on deflation is right up their alley. Posted by James Randolph on October 10, 2011
Everyone loses in the war on deflation.
October 10, 2011 – Keynesians love wars and the war on deflation is right up their alley. It all hinges on the belief that if you can create sufficient destruction then you can manufacture wealth by patching things up. But the Keynesians have an unusual brother-in-arms in this war – the supposed free market advocates of Friedman’s Chicago School.
“Their basic position,” says Robert P. Murphy in Agora Financial’s Whiskey & Gunpowder, “is that we are in a severe economic slump because Ben Bernanke has been too tight with monetary policy the past three years.” Somehow the totally ludicrous concept of “having the central bank print up new money to pay the government’s bills” has found substantial support well outside the Keynesian camp
Real people, however, don’t have much of a problem with deflation. If you ask the man in the street what he thinks about inflating our way out of debt he’ll think your nuts. And probably try to hit you up for a hundred bucks to boot.
When prices go down it makes real people happy. It’s the American way. Competition naturally holds down prices, so to boost profit margins companies need to continually innovate. The never ending cycle of making more, making it better, and making it for less is the backbone of a healthy economy. When people buy more stuff, factories build more stuff and stores sell more stuff – all the while hiring more people to keep pace. Heaven forbid.
Unfortunately there is nothing at all healthy about our economy. People today aren’t consuming because they are out of cash, they are maxed out on credit, and their wealth is disappearing before their eyes. They understand that the only way out is to pay as we go for what we need and save up for the things we want. They now realize that economic recovery begins with fiscal restraint and sound money.
A free market cannot function without hard money. Money that can be easily inflated makes it impossible to set a stable price that balances out supply and demand. The problem is we have been living with a perverted free market for so long that even our scholars have forgotten what the real thing looks like.
Senior Staff Writer – Certified Gold Exchange